Investors will pore over the earnings results of David Jones and Myer this week - and demand an update on their property plans in Sydney's CBD - as the focus intensifies on the elephant in the room: a $3 billion merger proposal between the two department store giants.

It explains why the new chairman of David Jones, Gordon Cairns, opted to accelerate the departure of one of its directors and appoint Port Jackson Partners to assess the merger proposal.

It means when David Jones reports its results on Wednesday the discussion can be steered towards the group's performance and outlook rather than questions about the leadership of the department store giant. It also puts to rest any disquiet about the composition of the board as both directors involved in a share trading scandal have gone.

The upshot is the focus will be on Paul Zahra when he releases the group's interim results on Tuesday, followed by Bernie Brookes, who will outline Myer's earnings on Thursday.

Both men have decided to stay on in their roles, which will make their presentations and the quality of their respective earnings and sales all the more important. If the merger proceeds, only one man will win: Zahra or Brookes.

Against this backdrop, it means investors will need to pay close attention to the underlying results of both organisations to ensure there isn't some polishing up of the figures.

For Myer it will be the first time investors will get to see how it fared over the all-important Christmas and New Year sales periods. In David Jones' case the market already knows what its sales figures look like, so the focus will be more on how far its profit margins have been squeezed and the proportion of its sales growth that came from its online sales. Some analysts estimate that up to 20 per cent of sales growth came from the growth in online sales. This means the company will need to show how it plans to revive sales growth in its department stores.

There is also speculation that Zahra might use the group's interim results to pump up the value of the company by giving an update on the development potential of the Market Street, Sydney store, following a submission lodged in February. Citi values the "airspace" option at $100 million.

In the meantime, the outlook for department stores remains a challenge as online retailers continue to wreak havoc on their margins, overseas retailers snare market share and consumers have become addicted to discounts.

In the past few years offshore groups, including Topshop, Gap, Zara and Costco, have all opened stores in Australia. US department store Nordstrom now counts Australia as its second-biggest foreign market after Canada. As Citigroup pointed out in a recent report, in the next year, H&M, Forever 21, Uniqlo and River Island are set to open, while Daiso and Zara are expected to expand.

Their success takes market share and dollars away from existing retailers. According to the AFR, in its second year Zara's Australian business generated $107 million in sales revenue and a gross profit margin of 66.7 per cent. Ikea and Costco together divert more than $1 billion in turnover a year away from the coffers of Bunnings, Harvey Norman and the supermarket chains. Speciality stores take foot traffic away from the department stores and offshore department stores are shaping up as formidable competitors.

Price isn't the only reason why customers are spending more online, overseas or in other areas. Service still has a long way to go and so does product range, quality and mix.

Myer moved on David Jones last October in an attempt to bring some dazzle back into the department store entities. It lobbed a merger offer of 1.06 Myer shares for every David Jones share. The proposal came to light when it was leaked to the media. The previous board rejected the offer, much to the chagrin of investors, but Cairns has made a commitment to revisit it.

But at the end of the day neither Myer nor David Jones have found the department store model of the future. For this reason the $3 billion merger makes sense as a stop-gap but at some stage they will need to create a more compelling offer.